Research Article

iMedPub Journals 2016
Journal of Hospital & Medical Management ISSN 2471-9781 Vol. 2 No. 1:2

DOI: 10.4172/2471-9781.10007

The U.S. Hospital Management from a Rachel Kim
Strategic Management Viewpoint Alliant International University, San Diego,

Abstract Corresponding author: Rachel Kim
Historically, competition has toughened the U.S. hospital industry, while hospitals
and managers have created innovative health care and treatments for their 
survival. This paper reviews interdisciplinary studies of hospital management and
percolates them into a strategic management perspective, so hospital management Alliant International University, 10455
in practice can grasp a big picture to lead their hospitals. Additionally, the paper Pomerado Rd No 15, San Diego, CA 92131,
is anticipated to be a guide for management researchers to re-examine hospital USA.
management and health care industry. Reflecting on the prior achievement of
strategic management unveils that so far hospital management studies have Tel: +1 626-284-2777
not integrated the progress of fragmented studies of hospitals. Thus, this study
suggests that strategic management researchers can further take this research
opportunity to better build theoretical and empirical research model of how to
increase success likelihood of innovation in the health care industry. Citation: Kim R. The U.S. Hospital
Management from a Strategic Management
Keywords: Hospital management; Innovative health care; Strategic management; Viewpoint. J Hosp Med Manage. 2016, 2:1.
U.S. hospital industry; Strategic cognition; Organizational capabilities

Received: January 06, 2016; Accepted: January 13, 2016; Published: January 25, 2016

Introduction Response to Regulatory Changes: Early
The U.S. health care industry has been rattled since The Affordable Studies
Care Act (AFA), also known as Obamacare, was activated. The
There was high turbulence in the hospital industry in the1980s
AFA created many political complications and conflict of interests as changes in reimbursement policies were changed and new
between federal and states government and the two main technologies emerged. This resulted in changing consumer
political parties [1]. Meanwhile, there were ongoing discussions of expectations and new sources of competition [2,3]. Around this
possible mergers and acquisitions among the top five health care time, U.S. health care public policy shifted from planning and
insurers1 in order to both develop efficient operating costs and regulation toward being pro-competitive [4]. In 1974, the Hill-
to generate more than half of their revenues from the Medicare Burton Act expired and federal legislation pursued cost reduction
and Medicaid government programs. Regardless of AFAs success and health care quality improvements. In 1982 and 1983, federal
or not, the industrial tension is indicative of major upcoming and state governments launched regulatory actions. Essentially,
changes. In this crucial timely juncture, a strategic management Medicare Prospective Payment System (PPS) was a prospective
view point may offer suggestions for hospital managers to achieve reimbursement of hospital expenses for Medicare patients
strategic success, both now and in years to come. in 1983 and forced hospitals to contain operation costs and
This paper reviews strategic management literature and connects vigorously compete with other hospitals. Under the prospective
reimbursement system, hospitals receive a set amount to treat a
the validated management constructs with hospital management
patient with a given diagnosis regardless of the actual costs. This
to help managers achieve their mission. As manifested in
change in policy has forced all hospitals to be more economically
hospitals’ mission statements, hospital organizations intend to
prevent and cure disease and to serve patients with a high quality
of care. In addition to assisting hospitals managers, this review These industrial challenges led scholars to investigate whether
might offer insightful management constructs for researchers to environmental changes have an impact on strategy changes, which
further investigate in the context of hospitals. This line of work offered the most veritable anatomy of hospital management and
remains understudied in the context of hospitals; although there provided the most valuable contributions to future researches
are numerous studies regarding the sectional aspects of hospitals. at the time [2,5-8]. Studies revealed that hospital management
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Journal of Hospital &ARCHIVOS DE MEDICINA
Medical Management 2016
ISSN 1698-9465
2471-9781 Vol. 2 No. 1:2

is distinctive from other business settings [3]. After 1983, most based upon the long-term goals. As Atkinson and Epstein
hospitals became strategic, moving from less aggressive to more [14] pointed out, performance measures must be complete,
aggressive strategies. Meanwhile, some of the hospitals with less measurable, and controllable, otherwise employees may not
aggressive strategies had lower profitability in 1985 [5]. Research see the linkage between their daily operations and long-term
also showed that more hospitals became strategically aggressive goal and performance measure. This is a crucial component of
from 1980to 1985 compared with the increase of aggressiveness success as the short-term objectives serve as milestones toward
from 1976 to 1980 [2]. the long-term strategic goals. Similarly, Shortell and colleagues
[15] pointed out the value of hospitals’ services became more
Researchers studied hospital strategies by comparing the
significant than the profit verse expenses. Moreover, specific
actual diversification of hospital services, number of new such
services were valued and rewarded by patients, which were
services initiated, and related measures, which indicated a high
viewed as hospitals’ strategic capabilities [16]. Managerial focus
degree of validity [5,8]. Generally, most hospitals responded to
on cost containment remained a constraint in the pursuit of inter-
industrial changes as expected [2,5,7]. The most illuminating top
professional knowledge sharing and quality care [17]. It is clear
management study was the investigation of managerial cognition
that financial performance fails to measure and indicate quality
and strategic issue interpretation in a hospital setting [3,9]. By
care, specialized services, and hospitals strategic capabilities.
interpreting external environment conditions, top management’s
Although the dominant criterion is still cost, quality of hospitals
cognitive role was understood as relevant to strategy changes.
service is now considered a performance measure, which includes
This was based upon consistent patterns between the decision
a hospital’s nationwide reputation and specialized services
process and the strategic decision [10]. Thus, the pioneering
research of hospital management at an industrial level seemed Currently, public and private efforts to report on hospital
to reveal that hospitals tend to change strategies when their performance have mostly utilized process and outcome measures
environment changes according to their sets of data. This result of quality (see Joint Commission: Accredition, Health Care,
was what most organizational and management theorists Certification (JACHO), The Healthcare Effectiveness Data and
anticipated. However, it is important to mention that financial Information Set (HEDIS). Outcome measures are predominant
performance was noticeably inconsistent with other variables in and include mortality, complication rates, costs, etc.; process
the studies, in that aggressive strategies did not have a positive measures include evidence-based care guidelines [18]. For
impact on financial performance [2,5] instance, HEDIS indicators demonstrate (1) effective disease
management, (2) access to preventive and follow-up care, and
Financial Performance and Strategic (3) medication compliance in treating depression [19]. Notably,
Performance HEDIS also includes preventative care measures: breast cancer
screening high blood pressure control, use of a beta blocker after
As an organization, per se, hospitals pursue effective care to best CVA, cholesterol management-LDL-C Screening, diabetes care-
serve patients and efficient operation to meet financial measures. HbA1C tested, poorly controlled, diabetes care-eye exam, and
Needless to say, the pursuit of these two goals has been extremely diabetes care-kidney disease monitoring. Aiming for high levels
challenging due to their inherent contradictions. Until 1996, most of preventative care may become a measurement tool for future
hospital top management was haunted by financial performance health care management. It is ideal to target preventive service
that did not reflect quality care. However in rural hospital as a norm in practice and to evaluate their strategic performance.
settings, cost efficiency and financial performance were relevant
Finally, quality care and internal learning were considered as of
[11,12], while financial performance was not linearly related to
performance measures in hospital management, which enabled
the degree of strategic aggressiveness [5].
managers and researchers to differentiate health care providers
With both practitioners and researchers struggling with financial from companies in business settings. The most significant
performance limitations, Kaplan and Norton [13] suggested the contribution management researchers have ever made in the
use of a Balanced Scorecard; this would serve as an integral hospital management field is the introduction of the balanced
measure of both external and internal aspects of a hospital scorecard performance measures.
organization, such as customer service, innovation, learning,
and financial performance. This eludes short term and long term Organizational Capabilities and
objectives that lead organizations measurable and controllable as
employees’ daily operations can be linked to. Evaluating internal
Managerial Cognition
and external components of the organization offered a way to While managers and researchers of hospitals strived to
better understand a hospital’s short and long-term objectives develop multi-dimensional performance measures, strategic
while also measuring aspects directly related to employees daily management researchers began defining companies as more
operations. Subsequently, the balanced score card provided a than economic entities. For example, Ghoshal [20-22] and other
tool to analyze short-and long-term objectives, financial and non- scholars described companies as organic beings with unique
financial measures, lagging and leading indicators, and external cultures, competences, paths, and customer relationships [20-
and internal performance perspectives and to operationalize 25]. Further, they recognized what differentiates top companies
particularly non-financial and strategic performance [13]. This from others was distinctive organizational capabilities that
integrated performance measure provides organizations and enabled to surpass others even in turbulent environment.
their leaders with long-term goals and short-term objectives Mostly, scholarly theorists with a focus on ‘dynamic capabilities’

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[26] and on ‘distinctive competitive advantages’ from a resource- hospital management studies to also utilize the current progress
based view of organization [27] enlightened practitioners and and findings of strategic management studies.
academia to identify what made industrial leaders. These leaders
Some hospital management study authors have already
are distinctive value creators whose customers are not going to
addressed managerial interplay and factored the influence of top
replace with competitors.
managers in adopting innovative management practices [50,51].
While most empirical studies tested and established the ‘dynamic However, it seems limited in terms of managerial cognition or
capabilities’ of organizations, other researchers noticed that strategic aggressiveness since the researchers used demographic
managerial cognition was missing in the management studies [28- characteristics of hospital directors from Veterans Health
30]. Managerial cognition and organizational cognition were first Administration (VHA). Essentially,the authors examined personnel
identified in the late 1980s [31], and then in the 1990’s managerial files of VHA directors, including their age, organizational tenure,
knowledge and cognition were examined in relation to decisions and prior Total Quality Management (TQM) exposure to build
about technological innovation [32-34]. Research revealed a link constructs for innovation management.
between managerial cognition and organizational performance
In addition to the influence of top managers, future researchers
[35]; further, managerial cognition seemed to drive strategic
need to be mindful that hospitals are among the most complex
decision-making [36] and strategic action [37]. This finally led to
types of hierarchical social organizations [52]. There is a need
integrating and solidifying longitudinal studies on the relationship
for further hospital studies to focus on middle managers’
between an organization’s managerial cognition and strategic
involvement, and how their involvement significantly impacts
behavior [38,39]. Current organization and management study
idea generation and internal networking as the element of
findings show that managers and their managerial cognition are
strategy makings [53,54]. Previous research showed that middle
key factors in sensing opportunities and reconfiguring resources
managers influenced factors regarding strategic inertia or
to sharpen organizational competitive advantages [40-42].
strategic renewal while interacting with top management [55,56].
Current industrial turbulence may offer great opportunities for In line with this view, there seems to be an insufficient number
strategic managers to identify and to make managerial sense of, of empirical studies that link managerial behavior and hospitals’
while allowing researchers to examine various organizational strategic behavior. Prior management studies have shown that
dynamics. Missing opportunities and failure might be related managerial behavior in strategy-making challenges the bias of the
to bounded managerial cognition shared within the industry, a dominant logic and develops new capabilities for a firm to enter
term Porac and his colleagues refer to as cognitive oligopolies new markets [57,58]. Moreover, managerial behavior was seen
[43-45] and similar to the industrial macro-cultures studied as deeply embedded in social relationships [58-60]. However, the
by Abrhamson and Fombrun [46]. Their approaches need to theoretical definition of middle management remains somewhat
be furthered by researchers in this turbulence. , as the prior ambiguous [61].
researchers Friedman, Shortell, Ginn, Meyer, Brooks, Goes, In furtherance of recommendation from management studies,
Shortell, Zajac, [2,5,7,8] did. Just as prior researchers discovered it might be essential to view hospitals as knowledge-based
new links and correlations between factors, future researchers organizations, in that medical care is readily available knowledge
will hopefully be able to better understand how and if, cognitive of best practice in the medical literature [62-64]. Principally,
oligopolies are related to missed opportunities and failure.” professionals are ranked by the depth of medical and health
As seen above, organization and management studies have care knowledge and positioned by their decision capabilities and
tapped into establishing that managerial cognition and resultant responsibilities. Within hospitals, there are experiences
managerial behavior are antecedents of organizational behavior of professionals working with patients, which need to be shared
[46]. For example, [3] conducted surveys to elucidate the most across their departments. In order to be innovative, it is necessary
tantalizing yet tentative relationships between managerial to collaborate and communicate inter-departments, beyond the
information seeking and issue interpretation, an essential part of boundary of functionality. Sharing the knowledge of experience
what strategic management studies have long sought. Although has been noted as tacit knowledge by many authors, though not
their methodology is based upon written scenarios that allow in hospital setting [65-68]. Specifically, some authors viewed
managers to interpret, this may extend to building constructs organizational knowledge as embedded in organizations [25,69]
organizational routines as shared norms, beliefs, and patterns
related to strategic issue interpretation and information seeking
of behavior [70,71]; and organizational procedural knowledge
behavior. Recent studies have showed reliable relationships
based on prior experiences [72]. On the other hand, other
between managers’ strategic cognition, strategic behavior, and
researchers noticed the importance of social relationships within
innovative products and services, though causality cannot be
an organization since it influences the level of shared cognition
assured [47]. When managers were more in collaboration with
and actions of the organization [73]. This line of work still needs
external partners, there were more innovative products and
to be done in hospital setting.
services [47-49]. Though the industrial logic of the biotechnology
industry is not the same as the hospital industry, it is still For hospitals’ strategic success, which serves as their main
worthwhile to extend the interplay of managerial cognition to objective, they must seek innovative solutions to better cure
the hospital industry. Based on the findings from previous diseases and serve patients in both effective and efficient ways.
studies, hospitals have already begun connecting relevant factors As scholars began defining companies beyond their economic
with performance improvement. It is recommended for future being, it became sensible to connect managerial cognition

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Medical Management 2016
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and strategic behavior. Damanpour and Evan [74] stated that researchers may need to go deeper to establish reliable constructs
innovation in health care helps hospital managers and health of managerial cognition, managerial behavior, and organizational
care practitioners better face regulatory and social changes behavior. As this paper has affirmed, hospital management and
and uncertainties by adopting new technology and having the health care industry has come a long way from struggling
organizational flexibility. Moreover, innovation in the health to meet social responsibility and regulation-forced financial
care sector should assist health care professionals to function at performance to now being recognized as knowledge sharing and
their best, in terms of cost efficiency and quality care [75,76]. In value creating organizations. Nonetheless, there is still a need
practice, collaboration across hospital departments improves the to examine the relational constructs of hospitals in comparison
efficiency, the effectiveness, and the quality of services [60,77], with the various performances aforementioned. Hospitals view
while poor management of resource allocation and professionals’ themselves as the knowledge creators of innovative care and
different interests hinder innovation [52,77-79]. By definition, treatment and their health care professionals as knowledge
innovation is new knowledge creation [67,80,81], which stems sharers and creators providing the innovative care and treatment.
from both explicit and implicit (tacit) knowledge sharing. In the In the United States, health care reform offers great opportunities
process of innovation, knowledge sharing involves both divergent for researchers to study the impact of managerial cognition in
and convergent managerial cognition [82]. response to regulatory changes; which is right time to do so.
[11,12], while financial performance was not linearly related to
In regards to knowledge sharing within hospitals, studies
the degree of strategic aggressiveness [5].
have already established this construct and connected it with
organizational performance. Knowledge sharing in hospitals
improved quality of care in terms of hospital coding accuracy,
which required network development and managerial leadership This review of hospital management and health industry
[83]. Empirical and case studies of knowledge sharing among literature has assuredly revealed great opportunities for strategic
inter-professionals at the intensive unit care showed promising management researchers to investigate how hospital managers
results for better quality care [17,63]. A shared electronic see the aforementioned challenges and how they respond to
medical record (EMR) improved communication and patient care, them, both within their own hospitals and with other hospitals,
which doctors viewed as knowledge recreation [84,85]. While to provide innovative patient care and treatment.
innovation diffused, network factors provided a relatively greater In this crucial time of industrial turbulence, managers should
determinant of the diffusion process. In the case of Norwegian embrace the new era as a potential gain for innovative health care
hospitals, a patient nutrition innovation program was successful providers. First, it seems relevant for the managers of hospitals
with collaborations [79]. Additionally, a pilot study regarding the to view internal professionals as knowledge providers and create
training and evaluation of residents showed patient care was knowledge-sharing networks within their own organizations and
improved with low complications, which leads to innovative with other organizations. Second, as the paper has discussed,
medical procedure services [86]. Some managers have perceived there have been promising results to support the relationship
that knowledge is a competitive advantage, to the various degrees between managerial cognition and organizational behavior.
which depended upon organizations and industries according to Additional research may further empirically establish the
the study comparing the textile companies and hospitals [87,88]. relationship between managerial cognition, managerial behavior,
In addition to studying the response to external factors, organizational behavior, and strategic performance.

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